All posts tagged MF Global

Eight months after his job was eliminated by the demise of MF Global, Jim O’Sullivan, one of the best-known economists on Wall Street, was named chief U.S. economist by economics consultancy High Frequency Economics.

O’Sullivan, former chief economist for MF Global, will start the new post on July 16, according to a press release by HFE. He replaces Ian Shepherdson, who announced plans to leave the firm on that date, the release said.

O’Sullivan’s career in economics research has spanned more than 26 years and he was named MarketWatch Forecaster of the Year for 2004, 2006, 2008 and 2011–four of the eight years since the award was created. Ranking is based on accuracy in projecting U.S. economic indicators, with virtually all Wall Street economists tracked.

O’Sullivan began his career at J.P. Morgan in 1985 and then moved to UBS in 2001. He became MF Global’s chief economist in 2009 and served there until the firm collapsed in October.

Brokers say today that margin transferred out of MF Global late last week has been freed, a plus for customers stuck with open trades and trapped margin, although about 40% of overall trading collateral held by MF Global remains held by the trustee liquidating the firm.

CME and and other US derivatives exchanges arranged a mass exodus of customer business from MF Global that wrapped up Friday, but margin that went along with open trades was held until close of business Tuesday as the exchanges worked with the trustee to make sure clients were getting the right amount.

Just a quick update to our earlier post about that Telegraph report that MF Global paid UK employees their bonuses just before the company filed for bankruptcy protection in the US.

A source familiar with the matter, who wanted to be anonymous because of the sensitivity of it, confirms that bonuses were paid to UK and US employees, but says they were regularly scheduled payments, based on formulas in employment contracts, that were processed several days before the bankruptcy filing.

So, according to this source, it is not as if MF Global employees were getting bonuses furtively shoved in their hands just before the doors closed. But it will still be cold comfort to those customers still waiting to just get their money back.

If a U.S. broker-dealer investing in what European officials touted as secure and fully backed sovereign debt can go under, where does that leave Europe’s largest institutions?

Officially at least, Europe’s largest banks do not have the same exposure to risky euro-zone debt as MF Global , whose $3.2 billion portfolio of Italian bonds was worth three time its equity capital. France’s’ BNP Paribas SA , for example, holds EUR21 billion of the Mediterranean country’s debt, Credit Agricole SA EUR8.5 billion, and Societe Generale SA EUR5.0 billion. As a percentage of each of the three French banks’ shareholder equity, that represents 29.9%, 15.99% and 9.59%, respectively. But these numbers are not insignificant and for various reasons do not accurately capture the risks they face.

According to the Bank for International Settlements, the French banking system’s total exposure to the riskiest euro-zone countries was EUR489.9 billion as of March 2011. That’s a whopping 7% of all banking assets in France, more than a quarter of the country’s GDP, and more than three times the combined equity of France’s three largest banks.

These numbers tell the same story of the structural and regulatory failures that helped get MF into its mess, especially the Basel III regulatory rules, which still give sovereign debt a zero weight for measuring the adequacy of Tier One capital — as if it were risk-free.

Some commodities traders with MF Global accounts are still locked out of the market, unable to transfer their funds to accounts with new brokerages.

“You have an account open here, you have an account open there, but nothing is transferring,” says Ryan Davies, principal at Alternative Investment Consultants, who has about 30 clients trying to transfer their accounts.

Traders have reported that their accounts have been frozen since MF Global’s Chapter 11 filing on Monday.

MF Global’s stock slumped Wednesday morning in investors’ first chance to trade the securities firm’s equity since it filed for bankruptcy protection on Monday.

MF Global’s stock dropped 94 cents, or 79%, to 26 cents, in heavy over-the-counter trading. It began changing hands in the OTC market after the New York Stock Exchange suspended the distressed broker’s listing late Tuesday afternoon.

More than 85 million shares were traded as of 10.00 a.m. EDT, according to FactSet Research, meaning MF Global’s volume has already outpaced the frenetic activity seen last Friday. About 84.7 million shares changed hands during the last session that the stock was active on the Big Board.

The Federal Reserve is among those feeling the pinch from the collapse of MF Global Holdings Ltd., which only eight months ago was added to the Fed’s list of 22 primary dealer banks.

MF Global’s spectacular downfall seems unlikely to pose a systemic financial risk to either the U.S. economy or the Fed, in sharp contrast to the fallout from Lehman Brothers in 2008. But it’s possible it will make the selection procedure tougher for primary dealers, an elite group of institutions with which the New York Fed conducts monetary policy and which are obligated to participate in U.S. Treasury debt auctions.

MF Global’s fortunes quickly went downhill over the past week amid concerns over its exposure to the euro zone’s sovereign debt. In this way, its travails underscore the potential contagion risks to the U.S. financial system via the primary dealer network. Besides MF Global, several primary dealers are owned by big European banks, including France’s BNP Paribas SA and Societe Generale SA, whose shares sold off in September due to concerns about their exposure to debts in Greece and other heavily indebted euro-zone sovereigns.

Cue the various Halloween cliches about spooked traders or scary markets, but the MF Global turmoil is leading to some nervousness in the futures markets where the troubled firm has a big presence.

George Gero, precious metals strategist at RBC Capital Markets, says headlines about MF Global traders being shut out of some futures exchanges has led to confusion.

While that could prevent the firm from taking on new positions, MF Global “traders are not barred from calling another broker to liquidate their positions,” Mr. Gero says.

This comes against an already skittish backdrop, he notes. “It’s the last day of the month, there’s the Japanese intervention which caused the dollar to gyrate,” he says. “But there’s still some selling in the market because of MF Global and the possibility of liquidations from them.”

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